Negative Equity, Add-ons and Refinances: What Car Loan Interest Counts

Under the final regulations (§1.163-16) the loan must be to buy the vehicle. Amounts financed for other things, like negative equity from a trade-in, are taken out pro rata. Service contracts, sales tax and fees financed with the car count as part of the purchase.

Refinancing

A refinance of a qualifying loan keeps qualifying up to the balance that was refinanced. Interest on any extra cash taken out doesn't count.

Last reviewed 2026-10-29. General information, not tax advice. Your lender's figures and a tax professional come first.